AG Madigan to sue Countrywide for fraud

(Crain's) -- Illinois Attorney General Lisa Madigan is suing Countrywide Financial Corp., claiming that the company knowingly put borrowers in mortgages they couldn't afford leading to thousands of residents losing their homes.

(Crain's) -- Illinois Attorney General Lisa Madigan is suing Countrywide Financial Corp., claiming that the company knowingly put borrowers in mortgages they couldn't afford leading to thousands of residents losing their homes.

The suit, filed Wednesday morning in Cook County Circuit Court, charges Countrywide with one count of fraud and deceptive business practices and one count of violating the Illinois Fairness in Lending Act.

Also named in the suit were co-founder and Chief Executive Officer Angelo Mozilo, Countrywide Home Loans Inc., Full Spectrum Lending and Countrywide Home Loan Servicing L.P.

Countrywide said in a statement that it is cooperating with Ms. Madigan's office.

"Our mission remains to assist our customers," Countrywide said. "We are particularly focused on working with our customers who are having difficulty making their mortgage payments, or who foresee difficulty with future rate resets."

Countrywide Financial Corp., based in Calabasas, Calif., is the nation's largest mortgage lender. It was also the largest mortgage lender in Illinois in 2004, 2005 and 2006, according to the suit.

Ms. Madigan's accusations stem from an investigation she began in September. At that time, her office subpoenaed Countrywide's home loan unit for documents and records related to loan originations and funding.

The suit alleges that Countrywide Financial "engaged in unfair and deceptive practices including the loosening of underwriting standards, structuring unfair loan products with risky features, engaging in misleading marketing and sale techniques and incentivizing employees and brokers to sell more and more loans with risky features."

Those practices, the suit said, led to higher loan delinquencies and foreclosure rates for Illinois homeowners.

"From 2006 to 2007, all foreclosure complaint filings in Cook County increased by 46%," the suit said. "For this same period, however, Countrywide Home Loans Inc.'s foreclosure complaint filings increased by 117%."

The suit claims that Countrywide foreclosed on at least 2,534 Cook County homes between January 2004 and June 2008.

Ms. Madigan is seeking a judgment that will order Countrywide to rescind, reform or modify all of its mortgages that were obtained by the company's alleged deceptive practices. She also wants restitution for borrowers who lost their homes due to Countrywide's practices.

The suit also seeks civil penalties up to $50,000 as well as a penalty of up to $10,000 for each violation of the state's Consumer Fraud and Deceptive Practices Act.